Question

Apco manufactures desk organizers in its Processing Department. Direct materials are included at the start of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units reach 80% of the production. Normal spoiled units generally constitute 1% of the good units (units that pass inspection point). Data provided for March 2020 are as follows: Apco uses FIFO method.

WIP, beginning inventory                       65,000 units Direct materials (100% complete)

Conversion costs (60% complete)

Started during March                            135,000 units Completed and transferred out             140,000 units

WIP, ending inventory                            30,000 units Direct materials (100% complete)

Conversion costs (30% complete)

Costs:

WIP, beginning inventory:

Direct materials	$400,000
Conversion costs	50,000
Direct materials added	600,000
Conversion costs added	300,000

1. Compute the normal spoilage units. (10 marks)
2. Compute the equivalent units for direct material. (10 marks)
3. Compute the equivalent units for conversion cost. (10 Marks)
4. Compute the cost per equivalent. (5 marks)
5. Compute the total cost for completed units. (5 marks)
6. Compute the total cost for ending work in process. (5marks)

Answer 1

1. Normal spoilage units = 1400 units

2. Equivalent units for direct material = 133600 units

3. Equivalent units for conversion cost = 138600 units

4. Cost per Equivalent unit = $10/unit

Direct Material = $7.49/unit

Conversion Cost = $2.53/unit

5. Total Cost of completed units = $1401440

Direct Material = $1047904

Conversion Cost = $353535

6. Total Cost of Closing WIP units = $300308

Direct Material = $224551

Conversion Cost = $75758

Working Note:

Calculation of Equivalent Units Particulars Material Degree of Equivalent Unit Completion Conversion Cost Degree of Equivalent Unit Completion Total Units Units 0% A. Completed and Transferred out From Opening WIP Inventory From fresh lot (140000 units - Opening WIP) B. Closing WIP Inventory C. Normal Spoilage (A*1%) D. Abnormal Spoilage (65000 units + 135000 units - 140000 units - 30000 units - 1400 units) Total Equivalent Units (1) 65,000 75,000 30,000 1,400 28,600 65,000 75,000 75,000 30,000 30,000 1,400 28,600 28,600 26,000 75,000 9,000 100% 100% 0% 100% 40% 100% 30% 0% 100% 28,600 133,600 138,600 Computation of Total Cost From Opening WIP Inventory From fresh lot Total Cost (11) $ $ $ 400,000 600,000 1,000,000 $ $ $ 50,000 300,000 350,000 $1,350,000 Cost per Equivalent Unit {III = (1/1)} $ 7.49 $ 2.53 $ 10 Total Cost for Completed Units (III * 140000 units) $ 1,047,904 $ 353,535 $ 1,401,440 Total Cost for Closing WIP (III * 30000 units) $ 224,551 $ 75,758$ 300,308